HIGHLIGHTS: Israel Pays Palestinian Funds without conditions||Pentagon Plans to Reduce Sinai Observer Force||Israel Indicts Alleged Resistance Activists|| STORY: Israeli occupation troops arrested nine Palestinians in their ongoing sweep of the West Bank, in searches that also unearthed an explosives laboratory.

Four Palestinians were arrested by the Israeli army in the villages of Al-Durra and Al-Sirreh on the outskirts of Hebron in southern West Bank, eyewitnesses said.

All able-bodied men were rounded up by the occupation army at dawn, after which the troops arrested two members of the Palestinian Authority's security services and one member of Palestinian leader Yasser Arafat's Fatah movement in Al-Sirreh, the sources said.

Another Fatah member was arrested in Al-Durra. The sources could not confirm whether the men were wanted by Israel.
Palestinian security sources said three Fatah members were arrested in Asira Al-Shimalia, north of Nablus in the northern West Bank.

Also in the northern West Bank, in Qalqilya, a member of the Resistance movement Hamas was arrested.

The occupation army said it also neutralized an explosives laboratory in Jenin and blew up the three-storey building housing it. Palestinian security officials said residents were given just minutes to get out ahead of the demolition.

Israeli army radio said one occupation soldier was slightly injured in clashes that erupted in Jenin.

And in Bethlehem, a man was arrested in his shop during a lifting of the curfew in the southern town.

The largest seven West Bank towns and surrounding villages have been re-occupied and subject to curfews since June 19.

ISRAEDL PAYS FROZEN PALESTINIAN FUNDS WITHOUT CONDITIONS

In what it termed a "test of credibility" for the new Palestinian finance minister, Israel unblocked a first tranche of hundreds of millions of dollars of frozen Palestinian funds, which it says aims to alleviate the dire plight in the re-occupied territories.

Palestinian finance minister Salam Fayad said in a statement that Israel had handed over a first tranche of frozen Palestinian funds without any conditions attached, despite an earlier Israeli claim he had refused to accept the money.

Fayad said the Palestinian Authority had received 70 million shekels (14.7 million dollars) from the customs duties and taxes withheld from the Palestinians by Israel since november 2000, two months after the start of the Palestinian uprising.

A report by the US Agency for International Development (USAID), to be released on August 5 but already widely distributed in diplomatic and media circles, has provided disturbing figures.

Thirty percent of Palestinian children under five who were screened suffered from chronic malnutrition and 21 percent from acute malnutrition, up from 7.5 and 2.5 percent respectively in 2000, the report said.

It said that 45 percent of the young children and 48 percent of women of childbearing age suffered from moderate to mild anemia, and the poor state of sanitation posed a risk of communicable diseases.

More than 30 percent of the 3.5 million Palestinians living on the West Bank and Gaza depend on food handouts, USAID said. Half the population needed outside help to meet their minimal food needs.

Meanwhile, the World Bank recently estimated that 60 to 65 percent of Palestinians in the West Bank and Gaza are living in poverty, or with less than 2.1 dollars per day.

The unemployment rate has also tripled since the beginning of the intifada, according to the Palestinian Central Bureau of Statistics.

It is unlikely that this sum will jumpstart the bankrupt Palestinian economy, which depended on clearance revenues for up to 60 percent of its total revenues prior to the intifada.

ISRAEL INDICTS ALLEGEGED RESISTANCE ACTIVISTS

Israeli prosecutors have meanwhile charged two Palestinians on Tuesday with masterminding attacks that killed 17 Israelis, the first time indictments have been handed down in civilian court against alleged militants in the 22-month Palestinian uprising.

Thousands of Palestinians have been arrested since the September 2000 outbreak of violence. Palestinian prisoners' organizations estimate that about 3,500 are in custody. Most are awaiting interrogation, while others are held under renewable detention orders issued by the Israeli military.

On Tuesday, prosecutors at Tel Aviv District Court indicted Nasser Awais, 32, from the West Bank's Balata refugee camp, on eight charges ranging from premeditated murder to membership in a 'terrorist' group.

He is accused of directing a string of bombing and shooting assaults, among them a January shooting at a Bat Mitzvah celebration in the coastal town of Hadera in which six revelers were killed.

Prosecutors in Jerusalem District Court issued 11 similar charges against Nasser abu-Hamid, 31, from the Amari refugee camp on the edge of the West Bank town of Ramallah. Among the attacks and attempted attacks he is alleged to have ordered was the shooting death of anti-Arab extremist Binyamin Zeev Kahane and his wife on a West Bank road in December 2000.

Court documents describe both suspects as close to Marwan Barghouti, a key leader of Yasser Arafat's Fatah movement.

Barghouti has been in Israeli custody since April, accused of links with the Al Aqsa Martyrs Brigades, an offshoot of Fatah that has claimed responsibility for dozens of attacks.

PENTAGON PLANS TO REDUCE SINAI OBSERVER FORCE

In another development, the Pentagon has summoned Israeli and Egyptian officials for a trilateral meeting Thursday to discuss how it plans to reconfigure the American peacekeeping force in the Sinai desert, US and Israeli sources said.

The Israeli delegation will be led by Defense Ministry Director-General Amos Yaron.

Defense Secretary Donald Rumsfeld has for over a year made clear that he wants to see the American mission in the Sinai end in order to free up badly needed troops for other US-led military missions.

Egypt and Israel both oppose any change in the status quo. The State Department has also cautioned that tough times in the Middle East make this an inauspicious time to leave the area.

Nevertheless, US sources said Rumsfeld is still intent on removing the vast majority of the 900 American peacekeepers and leaving behind a symbolic headquarters. "He wants to kill it entirely, but will settle for a massive reduction," one US official said.

PHOTO CAPTION

Palestinian finance minister Salam Fayad